Friday, 23 January 2015

The 2015 version of the Canadian Centre for Policy Alternatives report on CEO pay by Hugh Mackenzie revealed a substantial increase in average pay from the year before. The comparison to the pay of employees and all Canadians, who own shares in all these companies through their pension plans, mutual funds ETFs or directly, is shockingly out of whack. Companies justify this through incredibly complex schemes (got to Sedar.com and download a sample Management Information Circular aka Proxy Circular) that basically use peer comparison to benchmark.

So ... let's benchmark this:

BBC reports that in 2014 Apple CEO Tim Cook received total compensation of $9.2 million. Apple is the world's largest company (by far ahead of #2 Exxon), with a market cap of $659.21 billion. His pay was 9.2/659210 = 0.0014% of market cap. Cook is not exactly working for peanuts by CEO standards though. in 2013 he earned $73.9 million US, which is about $81.3 million CAD (mostly from stock options), or 0.0123% of market cap.

According to the Mackenzie report, the top CEO earner in Canada, Gerry Schwartz of Onex, took in $87.917 million in 2013. Onex's market cap is $7.67 billion. If we apply the Apple Cook percent as benchmark, Schwartz should have earned roughly 0.0014% x $7670 = $107,000 in 2014. Even at 2013 rates for Cook, Schwartz would deserve only $938,000. We'll be watching with high expectations in early April when Onex's 2015 Proxy Circular is filed with 2014 actuals.

Mackenzie is coming at the issue from from an ideologically leftist
viewpoint, so those who merely want to invest profitably may want to read
investment author and industry insider James Montier's investor-centered case against CEO pay
run amok, which he ascribes to a faulty corporate philosophy of shareholder
value maximization. One of his conclusions: "

Shareholder’s Lesson

Firstly, SVM has failed its namesakes: it has not delivered increased returns to shareholders in any meaningful way,

and may actually have led to poorer corporate performance!"

Disclosure: I own zero Onex shares and won't be buying any soon, given the pathetic earnings history of the company. I own Apple shares inside the PRF ETF.